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A Times Editorial

Expand regulation of nonprofit charities

In the world's richest country, no one is aggressively policing the charities. That's how the U.S. Navy Veterans Association collected unknown amounts of donations for nine years under the guise of helping veterans and their families. Now the group's front man is in the wind and no one is sure where all the money went. It should not be this easy to masquerade as a legitimate charity and operate with such impunity.

A six-month investigation by St. Petersburg Times staff writers Jeff Testerman and John Martin lays bare a sad truth about the world of nonprofits. It's possible to set one up, claim benevolent goals and significant national membership, hire telemarketing firms to raise cash from well-meaning Americans, allegedly falsify annual reports required by the Internal Revenue Service — without anyone paying attention.

The reason: The system is set up to take the country's nearly 2 million nonprofits at their word. Their only relationship with the federal government is an annual report filed with the IRS known as a Form 990.

But the IRS — whose core function is collecting taxes, not regulating charities — only audits roughly 3,500 nonprofit returns a year. Plus, the lag time between donations and IRS filing deadlines makes it impossible for individual donors to determine if their contributions were used as the charity pledged.

Some states, including Florida, maintain charity registries that list self-reported financial data from the nonprofits. But no one asks many questions unless complaints are filed. Some states do more. Texas, for example, requires nonprofits' audits to be public and for a charity's recipients to sign receipts. Because of such requirements, Navy Veterans never opted to do business there.

The association might still be flying under the radar here had the group not shown up as a $500 contributor to the 2010 re-election campaign of scandal-plagued Hillsborough County Commissioner Kevin White. A reporter asked the group's leader, a man calling himself Bobby Thompson, about the donation last year after revelations that White had greatly inflated his military service record of 56 days. Thompson said White had mistaken what was actually a personal contribution from him.

But from there, the group's misrepresentations snowball. An audit submitted to GuideStar, a nonprofit database Web site, was signed by a certified public accountant who cannot be found. The group's national chairman and 83 others listed on tax forms also cannot be found. The Times, in six months of searching, confirmed the existence of only two members.

Yet the group claims 66,000 members nationwide and as much as $22.4 million in donations in a year. The Times found some philanthropy by the group to other groups and a handful of individual veterans — but it's nowhere near the largesse expected from an organization boasting such fundraising and membership success.

The association appears to have exploited Americans' sincere desire to take care of veterans who have defended their freedoms. That is unconscionable, and it warrants thorough investigations for fraud and tax evasion.

But the Times' report should also spark a discussion at the state and federal level about the need to expand regulation of nonprofits. Americans should have some confidence that a registered charity's solicitation is not just some elaborate grift preying on their good intentions.

Expand regulation of nonprofit charities 03/21/10 [Last modified: Sunday, March 21, 2010 6:36pm]
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